FTSE Global Equity Index Series

customers additional accounts. On top of that, its expenses
are well above industry standards.
Instead what Commerce does is focus on attracting
consumer depositors with an array of conveniences,
gimmicks and services that other banks do not offer [or, at
least do not make a big
deal about]. Most visibly,
Commerce keeps longer
hours, including opening
on Sunday, than virtually
all of its competitors. It
lures people into its
branches with free coin
counting machines.
Branches are stocked with
dog biscuits for customers
who bring their pets in.
And the bank will take care
of all the rote work
associated with moving
online banking and bill
payment from a
competitor’s account. The
many touches – or
“extreme culture” and
“fanatical execution,” in Hill’s words – seem to add up in
the minds of consumers.
“Commerce has differentiated itself from the other
players,” says Charles B. Wendel, a banking industry
consultant in New York. And that is something few other
banks have done, he adds. While banks endlessly proclaim
that they care about their customers or that they are their
customers’ friend, Commerce is unusual in backing its
words up with delivery of a distinctly different level of
service, he explains.
And that is exactly the idea.“The customer cares about
the retail experience, rather than the highest rate,”Hill said
recently, during a visit to a mid-town Manhattan branch
that sits not much more than 100 metres from offices
owned by the four largest US banking companies, Citi,
Chase, Bank of America Corp. and Wachovia Corp. Indeed,
seemingly illustrating the point, the branch, on Avenue of
the Americas at 55th Street, has booked $267m in deposits
since it opened in September 2001 – a large number for a
mature office, let alone one less than four years old. In fact,
beyond the results of one particular branch, Hill appears to
be building a business around the premise that if a bank
willingly, maybe even eagerly, pays for all the pieces of an
attractive retail experience, then customers will not mind
that the bank does not pay especially competitive interest
on deposit accounts. With low-cost deposits flooding into
new branches and flowing at a more measured pace into
mature branches, Commerce is able to maintain relatively
good interest-rate margins. Then, as long as overall deposit
levels grow rapidly, earnings grow at a fast clip as well.
US consumers, Hill asserts, are nearly universal in their
dislike for their banks, making it rather easy to peel them
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FTSE GLOBAL MARKETS • JULY/AUGUST 2005
The quest for growth – turning an “amazing customer
experience” into an “amazing investor experience” –
Commerce Bancorp vs. US Banks
50
0
away. Even commercial business is drawn in by Commercestyle
retailing, Hill says, explaining that owners of small and
mid-sized businesses are not going to stay with banks
where their spouses or children have bad experiences.
Hill, 59, launched the bank in 1973 when he was only 27
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Commerce Bancorp NJ Citigroup JPMorgan Chase & Co
Bank of America FTSE US Banks Index
Data as at June 05. Source: FTSE Group/FactSet Limited.
years old, after running a
site development business
for a few years for retail
chains such as
McDonald’s Corp. In
addition to his 4.46%
stake in Commerce, he is a
partner in a group that owns
47 Burger King restaurants
in the Philadelphia area.
He says that he thought
from the beginning that a
government charter,
effectively a license to
accept deposits, nearly
guaranteed that he would
make money. He did not
always expect that his
bank would grow so large.
But now he is so confident
that he is practically daring competitors to stop him.
With a base in the suburbs of Philadelphia, and now 178
branches in the New York City area, Hill expects to open 10
to 15 branches in and around Washington this year and 200
over the next few years. He has said that either the Boston
area or Florida will be next; analysts expect him to
announce which it will be this summer. One of the big
reasons that he can march into new markets, he says
brashly, is that so many competitors do more to annoy their
customers than please them with their constant mergers
and acquisitions. “My competitors are in the cost-cutting
business,”Hill says.“I’m in the top-line growth business.”
Whether the characterisations are fair or not, Commerce
has performed quite well. It has produced an annual
average return to shareholders of 31% over both five and
10 years through the end of March. That compared to
compound annual average decline of 3% for the Standard
& Poor’s 500 over the past five years and an 11% annual
gain for the S&P 500 over a 10-year period.
The big question for investors, however, is whether
Commerce can keep up the pace – of apparently successful
new branch openings, of entry into new markets and of
continued growth in its longer-standing markets – or
whether competitors learn to do a better job of holding
onto their customers. At $28 in mid-May, the company’s
stock traded on the New York Stock Exchange for about 16
times the trailing 12 months’ earnings, suggesting healthy,
but unspectacular, expectations of investors.
A common view among analysts who follow Commerce
is that the company has at least several good years of
industry-leading growth ahead. “They are very good at
taking market share,” said Claire M. Percarpio, an analyst
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